Insurance in a Market for Credence Goods

Sülzle, Kai E.; Wambach, Achim

doi:10.2139/ssrn.305363

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Insurance in a Market for Credence Goods

24 Pages Posted: 22 Apr 2002

See all articles by Kai E. Sülzle

Kai E. Sülzle

United Nations Framework Convention on Climate Change

Achim Wambach

ZEW – Leibniz Centre for European Economic Research; University of Mannheim; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: February 2002

Abstract

We study the impact of insurance on the amount of fraud in a physician-patient relationship. In a market for credence goods, where prices are regulated by an authority, physicians act as experts. Due to their informational advantage, physicians have an incentive to cheat by inducing inappropriate treatment levels. It is shown that a higher co-insurance rate may lead to either less fraud in the market and a lower probability of patients searching for second opinions or more fraud and more searches. We also show that a higher co-insurance rate corresponds with a higher level of physician specialisation.

Keywords: Insurance Fraud, Credence Goods, Supplier Induced Demand

JEL Classification: D43, D82, G22, I11

Suggested Citation: Suggested Citation

Sülzle, Kai E. and Wambach, Achim, Insurance in a Market for Credence Goods (February 2002). Available at SSRN: https://ssrn.com/abstract=305363 or http://dx.doi.org/10.2139/ssrn.305363